WINDGEN ENERGY, INC. - Quarter Report: 2011 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2011
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to __________
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WINDGEN ENERGY, INC.
(Exact name of registrant as specified in its charter)
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Utah
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87-0397815
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(State or other jurisdiction of
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(IRS Employer Identification No.)
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incorporation or organization)
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14550 N. Frank Lloyd Wright Blvd., Suite 100
Scottsdale, Arizona 85260
(Address of principal executive offices)
(480) 991-9500
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ Not applicable.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer o |
| Non-accelerated filer o | Small reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ
As of May 13, 2011, 42,791,166 shares of the issuer’s common stock were outstanding.
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Table of Contents
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Page No.
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| Forward-Looking Statements | 3 | |
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4
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6
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7
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8
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18
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20
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22
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| Signatures |
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WINDGEN ENERGY, INC.
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and should be read in conjunction with the Financial Statements of WindGen Energy, Inc. (the “Company” or “WindGen”). Such statements are not historical facts and reflect our current views regarding matters such as operations and financial performance. In general, forward-looking statements are identified by such words or phrases as “expects,” “anticipates,” “believes,” “could,” “approximates,” “estimates,” “may,” “intends,” “predicts,” “projects,” “plans,” or “will,” or the negative of those words or other terminology. These statements are not guarantees of future performance and involve certain known and unknown inherent risks, uncertainties and other factors that are difficult to predict; our actual results could differ materially from those expressed in these forward-looking statements, including those risks and other factors described elsewhere in this Quarter Report. The cautionary factors, risks and other factors presented should not be construed as exhaustive. Other risks not presently known to us, or that we currently believe are immaterial, could also adversely affect our business, financial condition or results of operations.
Each forward-looking statement should be read in context with, and with an understanding of, the various disclosures concerning our business made elsewhere in this Quarterly Report, as well as other public reports filed by us with the United States Securities and Exchange Commission. Readers should not place undue reliance on any forward-looking statement as a prediction of actual results of developments. Except as required by applicable law or regulation, we undertake no obligation to update or revise any forward-looking statement contained in this Quarterly Report.
| Item 1. |
Financial Statements
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CONSOLIDATED BALANCE SHEETS
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March 31,
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December 31,
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2011
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2010
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(Unaudited)
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ASSETS
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Current Assets
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Cash & Cash Equivalents
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7,961
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33,278
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Other Receivable
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20,789
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20,355
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Prepaid Expenses & Other
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40,211
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50,601
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Total Current Assets
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68,961
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104,234
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Fixed Assets
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Equipment & Furniture, at Cost, Less Accumulated Depreciation of $6,555 and $6,555, respectively
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–
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–
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Total Fixed Assets
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–
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–
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Other Assets
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Licensing Rights - Wind Sail Receptor, Inc.
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190,000
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190,000
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TOTAL ASSETS
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258,961
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294,234
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LIABILITIES & STOCKHOLDER’S EQUITY
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Current Liabilities
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Related Party Consulting Fees Payable
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128,600
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125,500
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Accounts Payable
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1,529
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3,987
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Convertible Note Payable, net of debt discount of $7,153
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44,556
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23,451
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Preferred Stock Dividends Payable
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18,442
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17,969
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Total Current Liabilities
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193,127
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170,907
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TOTAL LIABILITIES
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193,127
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170,907
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(Continued)
The accompanying notes are an integral part of these financial statements.
4
WINDGEN ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
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March 31,
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December 31
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2011
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2010
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(Unaudited)
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STOCKHOLDERS' EQUITY (DEFICIT)
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Preferred Stock, 10,000,000 shares authorized; Series A Cumulative convertible preferred stock, 8% cumulative, $4.50 par value, 1,000,000 shares designated, 5,254 shares outstanding at March 31, 2011 and December 31, 2010, respectively (aggregate liquidation preference of $42,086)
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23,644
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23,644
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Common Stock, $.001 par value: 100,000,000 shares authorized, 41,705,094 and 41,238,429 shares outstanding at March 31, 2011 and December 31, 2010, respectively
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41,705
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41,238
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Additional Paid-In Capital
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9,463,796
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9,429,263
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Stock Subscription Receivable
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(10,000
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)
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(10,000
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)
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Accumulated Deficit
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(9,453,311
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)
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(9,360,818
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)
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TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)
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65,834
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123,327
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TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY
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258,961
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294,234
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The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited)
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For the Three Months Ended
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March 31,
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2011
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2010
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REVENUES
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$
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–
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$
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–
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OPERATING EXPENSES
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General & Administrative
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32,651
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24,999
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Legal & Professional Fees
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8,264
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24,409
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Related Party Consulting Fees
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30,000
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33,975
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Total Operating Expenses
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70,915
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83,383
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INCOME (LOSS) FROM OPERATIONS
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(70,915
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(83,383
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OTHER INCOME (EXPENSE)
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Interest Income (Expense)
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(986
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(337
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| Amortization of debt discount | (20,119 | ) | – | |||||
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Total Other Income (Expense), Net
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(21,105
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(337
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NET INCOME (LOSS) FROM CONTINUING OPERATIONS
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(92,020
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(83,720
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)
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DISCONTINUED OPERATIONS (Note 6)
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Income (Loss) from operations of MicroCor, Inc. (including gain on disposal of $355,000)
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–
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(11,512
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NET INCOME (LOSS)
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(92,020
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)
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(95,232
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PREFERRED STOCK DIVIDENDS
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(473
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(1,891
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NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
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$
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(92,493
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)
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$
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(97,123
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)
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NET INCOME (LOSS) PER COMMON SHARE (BASIC & DILUTED)
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$
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(0.00
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$
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(0.00
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)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
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BASIC
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41,305,278
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34,921,344
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DILUTED
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42,449,523
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34,952,868
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The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
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For the Three Months Ended
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March 31,
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2011
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2010
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net Loss/Income
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$
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(92,020
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$
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(95,232
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Adjustments to reconcile net loss to net cash used in operating activities:
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Interest expense from debt discount
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20,119
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–
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Related party consulting fee payable
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3,100
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30,000
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Prepaid expense
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10,390
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–
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Accounts payable
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(2,459
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)
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(8,109
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)
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Related party payable
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–
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(28,445
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)
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Accrued interest payable
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986
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4,873
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Royalty payable to related party
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–
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10,000
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Other receivable
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(434
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–
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Net cash provided by (used in) Continuing Activities
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(60,317
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)
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(86,913
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)
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Net cash provided by (used in) Discontinued Activities
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–
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(8,802
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)
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Net cash provided by (used in) Operating Activities
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(60,317
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)
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(95,715
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)
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Net cash provided by Investing Activities
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–
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–
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Proceeds from sale of stock
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35,000
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140,000
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Payments on notes
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–
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(11,939
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)
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Payments on notes related party loan
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–
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(10,720
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)
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Net cash provided by Financing Activities
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35,000
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117,341
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NET INCREASE (DECREASE) IN CASH
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(25,317
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)
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21,626
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CASH AT BEGINNING OF PERIOD
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33,278
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14,323
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CASH AT END OF PERIOD
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7,961
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35,949
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
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Cash paid during the year for interest
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$
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–
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$
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2,986
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Cash paid during the year for income taxes
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$
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150
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$
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–
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING & FINANCING ACTIVITIES:
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Stock Subscription Receivable for Exercise of Stock Options
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$
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10,000
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$
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17,500
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The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
From 1989 through 2008, InMedica Development Corporation (“InMedica”) and its then majority-owned subsidiary, MicroCor, Inc. (“MicroCor”) were engaged in research and development of a device to measure hematocrit non-invasively (the “Non-Invasive Hematocrit Technology” and/or the “Technology”). On June 24, 2010 WindGen terminated the former Development Agreement with Wescor and entered into a new agreement whereby WindGen transferred 230,000 shares of MicroCor commons stock owned by WindGen reducing WindGen’s holdings in MicroCor from 1,700,000 shares to 1,470,000 common shares, reducing its ownership percentage from 57% to 49%. Since WindGen’s ownership percentage is now less than 50%, MicroCor’s financial statements are no longer consolidated with WindGen’s financial statements. Synergistic Equities, Ltd. has acquired all of the shares of MicroCor previously owned by Chi Lin Technology, Ltd.
On April 17, 2009, the Company entered into a license agreement (the “License”) with Wind Sail Receptor, Inc. of Boulder City, Nevada (“WSR”), pursuant to which the Company was granted the exclusive license to sell WSR’s wind sail receptor wind generation systems using blades of 15 feet in length or less in the United States, Canada, and the United Kingdom. Under the License, the Company must acquire 100 blades from WSR during the year after WSR is able to manufacture the receptors. WSR is hopeful of commencing manufacture of the blades in 2011. The Company is currently negotiating with WSR to add additional exclusive territory to the License and, in addition, amending the License to allow the Company to manufacture and/or assemble the WSR wind generation systems.
On December 4, 2009, the Company changed its name from InMedica Development Corp to WindGen Energy, Inc.
Basis of Presentation
The Company’s unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustment relating to recoverability and classification of recorded amounts of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. The Company generated negative cash flows from operations of $60,317 and $95,715 for the three month periods ended March 31, 2011 and 2010, respectively, and net losses from operations of $92,020 and $83,720 for the three month periods ended March 31, 2011 and 2010, respectively. As of March 31, 2011, the Company had an accumulated deficit of $9,453,311 and a working capital deficit of $124,166. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s continued existence is dependent upon its ability to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or equity financing will be available, or will be available on terms acceptable to the Company. Management’s operating plan includes pursuing additional fund raising as well as research and development.
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basis of Presentation (Continued)
The accompanying consolidated financial statements of the Company are unaudited. However, in management’s opinion, all adjustments, consisting only of normal recurring adjustments necessary for fair presentation of results for the interim periods shown, have been made. Results for interim periods are not necessarily indicative of those to be expected for the full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Company’s annual report on form 10-K for the year ended December 31, 2010.
Principles of Consolidation
The consolidated financial statements include the accounts of WindGen Energy, Inc. (“WindGen”) and its majority owned subsidiary, MicroCor, Inc. (“MicroCor”) through June 24, 2010. As of June 24, 2010, MicroCor’s financial statements are no longer being consolidated with WindGen’s financial statements.
Research and Development
Research and development costs are expensed as incurred.
Net Loss per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted net loss per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other common stock equivalents were exercised or converted into common stock. At March 31, 2011 and 2010, respectively, there were 1,144,245 and 31,524 potentially dilutive common stock equivalents. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net loss per common share.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Comprehensive Income
There are no components of comprehensive income other than the net loss.
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Equivalents
For the purpose of reporting cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits.
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments, including receivables, accounts payable, accrued liabilities, and notes payable at March 31, 2011 and 2010 approximates their fair values due to the short-term nature of these financial instruments.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are recorded under the provisions of the Financial Accounting Standards Board (FASB) ASC 350 (formerly Statement ASC No. 142 (SFAS 142), Goodwill and Other Intangible Assets). ASC 350 requires that an intangible asset that is acquired either individually or with a group of other assets (but not those acquired in a business combination) shall be initially recognized and measured based on its fair value. Goodwill acquired in business combinations is initially computed as the amount paid by the acquiring company in excess of the fair value of the net assets acquired.
Costs of internally developing, maintaining and restoring intangible assets (including goodwill) that are not specifically identifiable, that have indeterminate lives, or that are inherent in a continuing business and related to an entity as a whole, are recognized as an expense when incurred.
An intangible asset (excluding goodwill) with a definite useful life is amortized; an intangible asset with an indefinite useful life is not amortized until its useful life is determined to be no longer indefinite. The remaining useful lives of intangible assets not being amortized are evaluated at least annually to determine whether events and circumstances continue to support an indefinite useful life. If and when an intangible asset is determined to no longer have an indefinite useful life, the asset shall then be amortized prospectively over its estimated remaining useful life and accounted for in the same manner as other intangibles that are subject to amortization.
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill and Other Intangible Assets (Continued)
An intangible asset (including goodwill) that is not subject to amortization shall be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of the intangible assets with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. In accordance with ASC 350, goodwill is not amortized.
It is the Company’s policy to test for impairment no less than annually, or when conditions occur that may indicate impairment. The Company’s intangible assets, which consist of licensing rights valued at $190,000 recorded in connection with the acquisition of the license related to the agreement with Wind Sail Receptor, Inc., were acquired in 2009 and will be tested for impairment in 2011. The licensing rights were determined to have an indefinite life as of December 31, 2010.
Recent Accounting Standards
In December 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-29 (ASU 2010-29), Business Combinations (Topic 805) – Disclosure of Supplementary Pro Forma Information for Business Combinations. This Accounting Standards Update requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. The amendments in this Update affect any public entity as defined by Topic 805 that enters into business combinations that are material on an individual or aggregate basis. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2010-29 to have a material effect on its financial position, results of operations or cash flows.
In August 2010, the FASB issued Accounting Standards Update 2010-22 (ASU 2010-22), Accounting for Various Topics -- Technical Corrections to SEC Paragraphs - An announcement made by the staff of the U.S. Securities and Exchange Commission. This Accounting Standards Update amends various SEC paragraphs based on external comments received and the issuance of SAB 112, which amends or rescinds portions of certain SAB topics. The Company does not expect the provisions of ASU 2010-22 to have a material effect on its financial position, results of operations or cash flows.
In August 2010, the FASB issued Accounting Standards Update 2010-21 (ASU 2010-21), Accounting for Technical Amendments to Various SEC Rules and Schedules: Amendments to SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies. The Company does not expect the provisions of ASU 2010-21 to have a material effect on its financial position, results of operations or cash flows.
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Standards (Continued)
In July 2010, the FASB issued Accounting Standards Update 2010-20 (ASU 2010-20), Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The amendments in this Update are to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. The disclosures about activity that occurs during the reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company does not expect the provisions of ASU 2010-20 to have a material effect on its financial position, results of operations or cash flows.
In April 2010, the FASB issued Accounting Standards Update 2010-17 (ASU 2010-17), Revenue Recognition – Milestone Method (Topic 605). ASU 2010-17 provides guidance on applying the milestone method of revenue recognition in arrangements with research and development activities. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The Company’s adoption of the provisions of ASU 2010-17 did not have a material impact on its revenue recognition.
In March 2010, the FASB issued Accounting Standards Update 2010-11 (ASU 2010-11), Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives. The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Company’s adoption of the provisions of ASU 2010-11 did not have a material effect on its financial position, results of operations or cash flows.
In February 2010, the FASB Accounting Standards Update 2010-10 (ASU 2010-10), Consolidation (Topic 810): Amendments for Certain Investment Funds. The amendments in this Update are effective as of the beginning of a reporting entity’s first annual period that begins after November 15, 2009 and for interim periods within that first reporting period. Early application is not permitted. The Company’s adoption of provisions of ASU 2010-10 did not have a material effect on its financial position, results of operations or cash flows.
In February 2010, the FASB issued ASU No. 2010-09 Subsequent Events (ASC Topic 855) - Amendments to Certain Recognition and Disclosure Requirements (ASU 2010-09). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position, results of operations or cash flows.
In January 2010, the FASB issued Accounting Standards Update 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-09). ASU 2010-06 amends FASB Accounting Standards Codification (“ASC”) 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers’ disclosures about postretirement benefit plan assets. This ASU is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial statements.
NOTE 2 – NOTES PAYABLE
On December 31, 2008, the Company converted $21,509 of accounts payable due to its attorney into a promissory note. At December 31, 2009, the balance due on this note was $22,799. During 2010, the Company paid-off the balance of this note by issuing 120,800 shares of the Company’s restricted common stock at $0.09 per share pursuant to the Company’s existing private placement offering and paying cash for the remainder of the balance.
On October 21, 2010, the Company borrowed $50,000 from a third party. The note is due on July 21, 2011 and carries an interest rate of 8% per annum. At March 31, 2011, the balance due on this note was $51,709.60. The note is convertible after six months at a conversion price of 55% of the market price of the common stock. Since the note contains a beneficial conversion feature, the intrinsic value of the conversion feature was calculated at the commitment date of October 21, 2010. At that date, the market price of the stock was $.105, the conversion price would have been $.05775, and the note would have been convertible into 865,801 shares of common stock. The intrinsic value was calculated to be $40,909, which was recorded to debt discount and to additional paid-in capital. The debt discount is being amortized over six months. At March 31, 2011, the remaining debt discount was $7,153. On April 25, 2011, the Note Holder converted $10,000 of its note to 227,273 shares of common stock pursuant to the conversion formula of the note. On May 4, 2011, the Note Holder converted $10,000 of its note to 246,914 shares of common stock pursuant to the conversion formula of the note. On May 11, 2011, the Note Holder converted $10,000 of its note to 278,552 shares of common stock pursuant to the conversion formula of the note.
NOTE 3 – COMMON STOCK TRANSACTIONS
On December 4, 2009, the Company changed its total authorized common shares from 40,000,000 to 100,000,000 shares.
During 2009, the Company issued 15,000,000 shares of common stock for cash of $95,000 and a stock subscription receivable of $17,500. The stock issuances were the result of the exercise of a stock purchase option agreement with Law Investments CR, S.A., a Costa Rica corporation. During 2010, $7,500 was paid toward the subscription receivable, leaving a balance of $10,000 at March 31, 2011.
During 2010, the Company issued 4,222,969 shares of common stock for cash of $316,423 pursuant to the Company’s Private Placement Memorandum.
During 2010 the Company completed the conversion of three of the four existing 8% Series A cumulative preferred shareholders by issuing 246,834 of the Company’s restricted common shares at a price of $0.50 per share plus a $5,000 cash payment to each preferred shareholder. The conversion of these preferred shares reduced the dividends payable from $64,309 at December 31, 2009 to $17,969 at December 31, 2010. As of March 31, 2011, the total dividends payable on the remaining shares of Series A cumulative preferred is $18,442.
During 2010, the Company issued 254,133 Shares of the Company’s restricted common stock for the conversion of debt in the amount of $20,875.
NOTE 3 – COMMON STOCK TRANSACTIONS (Continued)
During 2010 the Company issued 1,900,000 shares of the Company’s restricted common stock to Wind Sail Receptor in consideration of an amendment to the Company’s 2009 License Agreement with Wind Sail Receptor. The shares were value at $.10 per share.
During 2010 the Company registered 3,000,000 shares of its common stock pursuant to regulation S-8. As of December 31, 2010, 700,000 of these shares have been issued for consulting services valued at $63,000. The consulting services were originally recorded as a prepaid expense. As of December 31, 2010, the prepaid expense related to this stock issuance was $47,250. At March 31, 2011, the prepaid expense related to this stock was $31,500.
During 2010, the Company issued 285,000 shares of the Company’s restricted common stock for services valued at $28,500.
During the first quarter of 2011, the Company issued 466,665 shares of restricted common stock for cash of $35,000, as part of the Company’s Private Placement Memorandum.
NOTE 4 – PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock. The Company’s board of directors designated 1,000,000 shares of this preferred stock as Series A Cumulative Convertible Preferred Stock (“Series A Preferred”) with a par value of $4.50 per share. Holders of the Series A Preferred receive annual cumulative dividends of eight percent, payable quarterly, which dividends are required to be fully paid or set aside before any other dividend on any class or series of stock of the Company is paid. As of March 31, 2011, cumulative preferred stock dividends are due and payable in the amount of $18,442. Holders of the Series A Preferred receive no voting rights but do receive a liquidation preference of $4.50 per share, plus accrued and unpaid dividends. Series A Preferred stockholders have the right to convert each share of Series A Preferred to the Company’s common stock at a rate of 1.5 common shares to 1 preferred share.
During 2010, the Company completed the conversion of three of the four existing 8% Series A cumulative preferred shareholders by issuing 246,834 of the Company’s restricted common shares at a price of $0.50 per share plus a $5,000 cash payment to each preferred shareholder. The conversion of these preferred shares reduced the dividends payable from $64,309 at December 31, 2009 to $17,969 at December 31, 2010. As of March 31, 2011, the total dividends payable on the remaining shares of Series A cumulative preferred is $18,442.
On January 30, 2009, the Company entered into an agreement with MicroCor, its subsidiary (the “MicroCor Agreement”). The MicroCor Agreement provides for the Company to create a Series B class of preferred stock, without dividend or voting rights (the “Series B Preferred”), which will receive 100% of any future benefit from the sale, spin-off, merger or liquidation of MicroCor or the commercialization of its hematocrit technology. The shares of the Series B Preferred will be distributed as a dividend, subject to compliance with federal and state securities laws and regulations, to the Company’s common stockholders, as of January 30, 2009. The creation of the Series B Preferred will prevent any holder of the Company’s common stock after January 30, 2009 from sharing in any future benefit of or to MicroCor through the expiration date of January 30, 2011. The Series B Preferred Stock will not be issued to the common shareholders of record at January 30, 2009 inasmuch as no benefit occurred prior to the expiration date of January 30, 2011.
NOTE 5 – EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock:
|
For the Quarters Ended
|
||||||||
|
March 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Net Income (Loss)
|
$
|
92,493
|
$
|
97,123
|
||||
|
Less: preferred dividends
|
(473
|
)
|
(1,891
|
)
|
||||
|
Income (Loss) available to common stockholders used in basic EPS
|
$
|
92,020
|
$
|
95,232
|
||||
|
Convertible preferred stock
|
473
|
1,891
|
||||||
|
Convertible notes payable
|
–
|
–
|
||||||
|
Income (Loss) available to common stockholders after assumed conversion of dilutive securities
|
$
|
92,493
|
$
|
97,123
|
||||
|
Weighted average number of common shares used in basic EPS
|
41,305,278
|
34,921,344
|
||||||
|
Effect of dilutive securities:
|
||||||||
|
Convertible preferred stock
|
7,881
|
31,524
|
||||||
|
Convertible notes payable
|
1,136,364
|
–
|
||||||
|
Options
|
–
|
–
|
||||||
|
Weighted average number of common shares and dilutive potential common stock used in diluted EPS
|
42,449,523
|
34,952,868
|
||||||
NOTE 6 – DISCONTINUED OPERATIONS
On June 24, 2010, WindGen Energy, Inc. entered into an agreement with MicroCor, Inc., Chi Lin Technology Co., Ltd. and Wescor, Inc., whereby WindGen will transfer 230,000 shares of MicroCor common stock owned by WindGen to Wescor, reducing WindGen’s holdings in MicroCor from 1,700,000 common shares to 1,470,000 common shares. WindGen’s percentage of ownership of MicroCor will be reduced from approximately 57% to 49%. Since WindGen’s ownership percentage will be below 50%, MicroCor’s financial statements will no longer be consolidated with WindGen’s financial statements.
Operating results of this discontinued operation for the three months ended March 31, 2011 are shown separately in the accompanying consolidated statement of operations. The operating statement for the three months ended March 31, 2010 has been restated to conform to the current year’s presentation and are also shown separately. The operating results of this discontinued operation for the three months ended March 31, 2011 and 2010 consist of:
NOTE 6 – DISCONTINUED OPERATIONS (Continued)
|
For the Three Months Ended
|
||||||||
|
March 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Sales
|
$
|
–
|
$
|
–
|
||||
|
General and administrative
|
–
|
(15,441
|
)
|
|||||
|
Legal and professional
|
–
|
–
|
||||||
|
Interest Expense
|
–
|
(4,873
|
)
|
|||||
|
Gain on deconsolidation of MicroCor
|
–
|
–
|
||||||
|
Net Income (Loss) attributable to noncontolling interest
|
–
|
8,802
|
||||||
|
Net Income (Loss) from discontinued operations
|
$
|
–
|
$
|
(11,512
|
)
|
|||
NOTE 7 – RELATED PARTY TRANSACTIONS
During 2009, the Company accrued consulting expenses of $60,000 from officers of the Company. During 2010, the Company accrued additional consulting expenses from officers of $65,000. During the first quarter ending March 31, 2011, the Company accrued additional consulting expenses from officers of $3,100.
During 2009, an entity associated with Company, paid various expenses on behalf of the Company. At December 31, 2009, the Company owed $24,514 to the related entity. During 2010, the Company paid-off the balance due to the related party by issuing 133,333 shares of the Company’s restricted common stock at $0.075 per share pursuant to the Company’s existing private placement offering and paying cash for the remainder of the balance.
NOTE 8 – JOINT DEVELOPMENT AGREEMENT
On June 24, 2010 WindGen terminated the former Development Agreement with Wescor and entered into a new agreement whereby WindGen transferred 230,000 shares of MicroCor commons stock owned by WindGen reducing WindGen’s holdings in MicroCor from 1,700,000 shares to 1,470,000 common shares, reducing its ownership percentage from 57% to 49%. Since WindGen’s ownership percentage is now less than 50%, MicroCor’s financial statements are no longer consolidated with WindGen’s financial statements. This transaction had the impact on WindGen’s financial statements of reducing the Company’s liabilities from December 31, 2009 in the amount of $570,019. Synergistic Equities, Ltd. has acquired all of the shares of MicroCor previously owned by Chi Lin Technology, Ltd.
NOTE 9 – ROYALTY RIGHTS
At March 31, 2011, the Company had no outstanding Royalty Rights payable to any person or entity.
NOTE 10 – UNCERTAIN TAX POSITIONS
Effective January 1, 2007, the Company adopted the provisions of ASC 740 (formerly FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”). ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The adoption of the provisions of ASC 740 did not have a material impact on the Company’s condensed consolidated financial position and results of operations. At March 31, 2011, the Company had no liability for unrecognized tax benefits and no accrual for the payment of related interest.
Interest costs related to unrecognized tax benefits are classified as “Interest Expense, Net” in the accompanying consolidated statements of operations. Penalties, if any, would be recognized as a component of “Selling, general and administrative expenses.” The Company recognized $0 of interest expense related to unrecognized tax benefits for the year ended December 31, 2010. In many cases the Company’s uncertain tax positions are related to tax years that remain subject to examination by relevant tax authorities. With few exceptions, the Company is generally no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for years before 2007. The following describes the open tax years, by major tax jurisdiction, as of March 31, 2011:
|
United States (a)
|
2007 – Present
|
|
|
__________
|
||
|
(a) Includes federal as well as state or similar local jurisdictions, as applicable.
|
||
NOTE 11 – SUBSEQUENT EVENTS
The Company adopted ASC 855, and has evaluated all events occurring after March 31, 2011, the date of the most recent balance sheet, for possible adjustment to the financial statements or disclosures through May 13, 2011, which is the date on which the financial statements were issued.
During April and May of 2011, the Company sold 333,333 shares of its restricted common stock pursuant to the Company’s current Private Placement for cash in the amount of $25,000.
On April 25, 2011, the Note Holder converted $10,000 of its note to 227,273 shares of common stock pursuant to the conversion formula of the note. On May 4, 2011, the Note Holder converted $10,000 of its note to 246,914 shares of common stock pursuant to the conversion formula of the note. On May 11, 2011, the Note Holder converted $10,000 of its note to 278,552 shares of common stock pursuant to the conversion formula of the note.
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
Overview
InMedica Development Corporation (“InMedica” or the “Company”) was incorporated as a Utah corporation on June 16, 1983. On December 4, 2009, a majority of the Company’s shareholders executed a consent resolution to amend the Company’s Articles of Incorporation to change the Company’s name to WindGen Energy, Inc. (“WindGen” or the “Company”) and to increase the number of authorized common stock shares from 40,000,000 to 100,000,000. A Certificate of Amendment for such amendments was filed by the Company with the Secretary of State of Utah effective on December 16, 2009. The name change and the new trading symbol, “WGEI,” were approved by FINRA on March 16, 2010.
Plan of Operation
In January 2008, the Company’s plan of operation was to continue to work cooperatively with MicroCor and Wescor in the development of the Company’s portable Hematocrit device. In late 2008, Wescor ceased all research and development efforts on the Hematocrit technology. During 2008, the Company funded administrative operations with the proceeds of minimum royalty payments from MicroCor and from loans from the Company’s officers and Directors. These minimum payments to the Company from MicroCor have ceased. On June 24, 2010, the Company entered into an agreement with MicroCor, Chi Lin and Wescor, whereby the Company transferred 230,000 shares of MicroCor common stock owned by the Company to Wescor, reducing the Company’s holdings in MicroCor from 1,700,000 common shares to 1,470,000 common shares. The Company’s percentage of ownership of MicroCor was reduced from approximately 57% to 49%. Since the Company’s ownership percentage is below 50%, MicroCor’s financial statements are no longer consolidated with the Company’s financial statements. Development of the Hematocrit device remains dormant but has not been abandoned.
New Company Focus: Wind Energy
With new management, we have refocused the Company on wind energy devices. On April 17, 2009, we entered into a license agreement (the “License”) with Wind Sail Receptor, Inc. of Boulder City, Nevada (“WSR”), pursuant to which we were granted the exclusive license to assemble and market WSR’s wind sail receptor energy generation devices using blades of 15 feet or less in length in the United States, Canada, the United Kingdom and Ireland, with nonexclusive rights in the rest of the world except Latin America and the Caribbean. Under the License, we must acquire 100 blades from WSR during the first year after WSR is able to manufacture the blades. WSR is currently in the final stages of selecting the electrical generator that it will connect to the WSR wind turbine blade.
During 2010, the Company issued 1,900,000 shares of the Company’s restricted common stock to WSR in consideration of amending its License. The proposed amendment to the License Agreement currently in existence between the Company and Wind Sail Receptor has not yet been executed. The reasons are various and include, but are not limited to, finalizing details regarding the need for the Company to be involved in assembly of the wind turbines in various license territory outside the US, final pricing that the units will be sold by Wind Sail Receptor to the Company, final terms of the product Warranty to be provided by Wind Sail Receptor, and possible additional exclusive territory added to the license. Under the terms of the existing License the Company intended to use its best efforts to obtain Federal, State, Local, or Private Grant Funds and to share these Grant Funds with Wind Sail Receptor up to a sum of $1,000,000. To date the Company has not been successful in obtaining Grant Funds. The proposed amendment also could result in altering the various financial dealings between the two companies. No monetary disputes currently exist between the two companies. WSR is hopeful that it will begin production of complete wind turbine systems during the second half of 2011.
We anticipate our first three wind turbine products will have blade diameters of 3, 6 and 12 feet with towers from 325 to 75 feet in height. The fist unit to be offered in the market place will be the six foot blade diameter unit. We are currently negotiating terms for the formation of the working capital required to bring our first products to market at some point during the second half of 2011. The progress of the Company in marketing its new small wind turbine products is dependent on obtaining additional capital.
Assembly and Marketing
To date during 2011, Wind Sail Receptor has been developing a well-organized approach to the manufacturing/assembly process to assure high-quality, rapid-development cycles and overall competiveness. The Generator/Alternators will be manufactured by Ginlong Technologies Inc, and experienced wind turbine generator manufacturer located in China. WSR will also be responsible for the manufacture of the critical blade component at its plant near Boulder City, Nevada. At this time suppliers have been located for all of the non-blade components for our products.
To launch into the important rural small wind turbine market in the central wind belt and the western part of the United States (our initial marketing objective), we hope to join forces with some excellent partners and distributorships. We intend to recruit existing well established wind turbine distributors currently representing our competitors. In addition, we are currently in contact with various major name brand farm equipment dealers who have a well-established rural network of dealers throughout America, all with the ability to provide excellent sales, installation, and maintenance services. We also plan to sell distributorships to other existing service-oriented organizations.
We are currently in the process of finalizing our first two products that should be available during the second half of 2011. Subject to availability of adequate capital, product roll out could follow quickly in the central wind belt and the western part of the United States.
Results of Operations
The Company had an accumulated deficit of $9,453,311 as of March 31, 2011. No revenues from operations were received in 2011 and 2010. The Company had a net loss from continuing operations of $92,020 for the quarter ended March 31, 2011, compared to a net loss from continuing operations of $83,720 for the quarter ended March 31, 2010. The increase in net loss from continuing operations resulted primarily from increased General and Administrative Expenses and Related Party Consulting Fees. These types of expenses will continue to increase, subject to available funding, as we continue with our business plan.
Liquidity and Capital Resources
During the first quarter of 2011, we sold 466,665 shares of restricted common stock for total gross proceeds of $35,000. See “Part II, Item 2, Unregistered Sale of Equity Securities and Use of Proceeds” below.
On October 21, 2010, the Company borrowed $50,000 from a third party (the “Note Holder”). The note is due on July 21, 2011 and carries an interest rate of 8% per annum (the “8% Note”). At March 31, 2011, the balance due on this note was $51,709.60. The 8% Note is convertible after six months at a conversion price of 55% of the market price of the common stock. As of May 13, 2011, the principal balance due on this note was $20,000, convertible into common shares of the Company pursuant to the terms and conditions of the note.
The Company’s independent registered public accounting firm has issued a going concern opinion on the Company’s consolidated financial statements for the year ended December 31, 2010. See Note 1 to the financial statements. The Company’s liquidity shortage will continue through the second quarter of 2011. The Company is currently negotiating terms for a new convertible preferred stock to be issued by the Company in order to form new capital of up to $5,000,000 in order to implement its business plan in 2011.
Implementation of our new business to assemble and market wind turbines is contingent upon our ability to acquire new capital in 2011. We currently estimate we will need to generate approximately $3,500,000 of new capital during 2011 to fully implement our new business plan. We also estimate $2,000,000 of new capital would permit us to implement enough of our plan to commence minimal marketing of our wind turbine units in the second half of 2011.
We intend to acquire new capital during 2011 through the sale of equity or convertible debt or a combination of both in one or more private placements. Presently, we have no final agreement or understanding with any underwriter, investment banker or investor for any financing. There is no assurance we will be able to complete any substantial financing in the future.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk.
|
Not applicable.
| Item 4. |
Controls and Procedures.
|
Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2011. The evaluation included certain control areas in which are material to Company and its size.
Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective as of the Evaluation Date, and we have discovered no material weakness.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. The Company’s internal control over financial reporting includes those policies and procedures that:
|
(i)
|
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
|
|
(ii)
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
|
|
(iii)
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
|
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of March 31, 2011, based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), that has been modified to more appropriately reflect the current limited operational scope of the Company. The Company used the COSO guide - The Internal Control over Financial Reporting - Guidance for Smaller Public Companies to implement the Company’s internal controls. Additionally, the limited scope of operations of the Company means that traditional separation of duties controls are not used by the Company as a result of the limited staffing within the Company. The Company relies on alternative procedures to overcome this non-material control weakness. Based on its assessment, management concluded that its internal control over financial reporting was effective as of March 31, 2011.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This Quarterly Report on Form 10-Q does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to recent statute.
Changes in Internal Control Over Financial Reporting
During the fiscal quarter ended March 31, 2011, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| PART II. |
OTHER INFORMATION
|
| Item 1. |
Legal Proceedings. None.
|
| Item 1A. |
Risk Factors. Not applicable.
|
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds.
|
During the first quarter of 2011, the Company issued 466,665 shares of restricted common stock for $35,000 to three (3) accredited investors and one (1) non-accredited investor as those terms are defined by SEC Rule 501, pursuant to a Rule 506 private placement we are currently conducting. These sales were made without public solicitation. There were no underwriting discounts or commissions paid on these sales of securities. The proceeds of this offering will be used by the Company for working capital expenses.
During the first quarter of 2011, no shares of the Company’s common stock were issued to employees or consultants pursuant to the Company’s 2010 Employee and Consultant Compensation Plan.
Subsequent Events
The Company adopted ASC 855, and has evaluated all events occurring after December 31, 2010, the date of the most recent balance sheet, for possible adjustment to the financial statements or disclosures through March 31, 2011, which is the date on which the financial statements were issued.
During the second quarter of 2011, the Company issued 333,333 shares of restricted common stock for $25,000 to three (3) non-accredited investors as that term is defined by SEC Rule 501, pursuant to a Rule 506 private placement we are currently conducting. These sales were made without public solicitation. There were no underwriting discounts or commissions paid on these sales of securities. The proceeds of this offering will be used by the Company for working capital expenses.
On April 25, 2011, the Note Holder converted $10,000 of the 8% Note to 227,273 shares of common stock pursuant to the conversion formula of the note. On May 4, 2011, the Note Holder converted $10,000 of the 8% Note to 246,914 shares of common stock pursuant to the conversion formula of the note. On May 11, 2011, the Note Holder converted $10,000 of its note to 278,552 shares of common stock pursuant to the conversion formula of the note. Following such conversions, the balance due on the 8% Note is $20,000, convertible in to common shares of the Company pursuant to the conversion formula provided for in the note.
| Item 3. |
Defaults Upon Senior Securities. None.
|
| Item 4. |
(Removed and Reserved)
|
| Item 5. |
Other Information.
|
The Company has requested that the SEC change its Standard Industrial Classification Code from “6794 – Patent Owners and Lessors” to “3511 – Steam, Gas, and Hydraulic Turbines, and Turbine Generator Set Units” to reflect the change in the business of the Company.
|
Exhibits
|
|
Exhibit No.
|
Description
|
|
|
31.1
|
Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act *
|
|
|
31.2
|
Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act *
|
|
|
32.1
|
Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act *
|
|
|
32.2
|
Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act *
|
__________________
|
*
|
Filed herewith.
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| WINDGEN ENERGY, INC. | |||
|
Dated: May 16, 2011
|
By:
|
/s/ Ronald Conquest | |
|
Ronald Conquest
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
|
|||
|
Dated: May 16, 2011
|
By:
|
/s/ Wendy Carriere | |
|
Wendy Carriere
Secretary/Treasurer,
Chief Financial Officer and Director
(Principal Accounting Officer)
|
|||
24